Why EVs Are Piling Up At Dealerships In The U.S.

Summary

The electric vehicle (EV) market is experiencing a slowdown despite massive investments, with consumers and dealers showing hesitancy due to range anxiety and insufficient charging infrastructure. While sales of EVs are softening, Tesla's aggressive pricing impacts the market, and the industry faces challenges with supply chain, government mandates, and economic factors. However, there is optimism as consumers are willing to accept trade-offs in charging times and range for the benefits of EVs, indicating a shift in mindset towards embracing electric mobility.

Takeaways

• 🚀 The auto industry is experiencing an unprecedented level of investment in electric vehicles (EVs), with $6.5 billion dedicated to this sector alone.
• 📈 Wedbush predicts that spending on commercial EVs will exceed 1.2 trillion dollars between now and 2030, highlighting a significant growth in the EV market.
• 🌐 In 2022, global consumer spending on electric cars reached nearly $400 billion, indicating a substantial market for EVs worldwide.
• 🇺🇸 The US is projected to add 1 million new EVs to its roads annually from 2023 to 2027, showcasing a strong domestic commitment to EV adoption.
• 💰 Automotive companies have pledged a total of $616 billion in investments, emphasizing their dedication to the future of electric mobility.
• 🛑 Despite these investments, EV sales are experiencing a slowdown, with consumers expressing concerns about range anxiety and charging infrastructure.
• 📉 The time to sell an EV in the US doubled from January to August 2023, while traditional gas-powered vehicles continued to sell well.
• 🤔 Consumer sentiment towards EVs is mixed, with less than a third of dealers believing that EVs will replace combustion engines, despite over half of consumers seeing EVs as the future.
• 💸 Tesla has significantly reduced its vehicle prices, affecting the market dynamics and putting pressure on other EV manufacturers.
• 📊 There is an oversupply of EVs in the industry, with dealerships holding a 52-day supply of internal combustion engine (ICE) vehicles compared to 90-100 days for EVs.
• 🔋 The average transaction price for an EV in the US is higher than that for ICE vehicles, which may be a factor in the slowing sales of EVs.
• 🔄 The EV market is seeing a shift in buyer demographics, with more consumers trading in their existing vehicles for new EVs, indicating a growing acceptance of EVs as primary vehicles.

Q & A

What is the current investment trend in the electric vehicle (EV) industry?

The investment in the EV industry is significant, with $6.5 billion strictly dedicated to EVs and a projection by Wedbush that spending on commercial EVs should top 1.2 trillion between now and 2030.

How much did consumers spend on electric cars worldwide in 2022?

Consumers spent nearly $400 billion on electric cars worldwide in 2022.

What is the expected number of new EVs to be added to the US roads from 2023 to 2027?

The US is expected to add 1 million new EVs to its roads each year from 2023 to 2027.

What is the total investment committed by automotive companies towards EVs?

Automotive companies have committed a total of $616 billion in investments towards EVs.

Why is there a slowdown in EV sales despite the significant investments?

EV sales are slowing due to factors such as consumer anxiety about range, lack of public charging infrastructure, and the high cost of EVs compared to traditional combustion engine vehicles.

What is the current sentiment among consumers and dealers regarding the future of EVs?

While slightly more than half of consumers say EVs are the future, less than a third of dealers share this belief, indicating a gap in perception between the two groups.

How has Tesla responded to the changing EV market conditions?

Tesla has responded by slashing prices dramatically, which has affected the market dynamics and put pressure on other EV manufacturers.

What is the average transaction price for a vehicle in the US as of September 2023?

The average transaction price for a vehicle in the US was about $48,000 in September 2023.

How does the transaction price for an EV compare to the average vehicle transaction price?

The average transaction price for an EV was between $53,000 and nearly $60,000, which is higher than the average transaction price for a vehicle in the US.

What challenges are faced by the EV industry in terms of supply and demand?

The EV industry is facing an oversupply of vehicles that is greater than the demand, with EVs sitting on lots for longer periods compared to internal combustion engine (ICE) vehicles.

What is the impact of regional factors on the adoption of EVs?

EV adoption rates closely track economic metrics such as pump prices and home energy rates, with higher gas prices in regions like California driving more consumers toward EVs.

What is the current market share of Tesla in the EV segment?

Tesla dominates the EV market, accounting for about two-thirds of all EVs sold, largely due to their aggressive pricing and extensive charging network.

How do consumers' attitudes towards EVs compare to their attitudes in 2019?

Although the number of buyers considering an EV fell from 2021 to 2023, it is still higher than it was in 2019, indicating a growing interest in EVs over time.

Outlines

00:00

🚗 Unprecedented Investment and Challenges in the EV Market

The electric vehicle (EV) industry is witnessing an unprecedented level of investment, with $6.5 billion dedicated to EVs and an expected spending of over 1.2 trillion by 2030. Despite the surge in consumer spending on electric cars, the US is encountering a slowdown in EV sales, with the time to sell an EV doubling from January to August 2023. Concerns about long-distance travel and charging infrastructure are causing anxiety among potential buyers. Automotive companies have committed a massive $616 billion in investments, yet the market is experiencing an oversupply of EVs, with dealerships holding a 90 to 100-day supply compared to a 52-day supply for internal combustion engine (ICE) vehicles. Consumer enthusiasm for EVs has dampened, with a drop from 86% considering EVs in 2021 to 67% in 2023. Companies like Tesla have resorted to slashing prices, while others like Ford have increased hybrid production due to decreased EV demand.

05:02

📉 Shifting Dynamics in the Electric Vehicle Market

The EV market is experiencing a significant shift, with sales softening not just for established brands but also for luxury EV brands like Lucid, which has reported weaker demand for two consecutive quarters. Economic challenges such as rising interest rates, inflation, and disrupted supply chains are impacting the EV market. The inflexible EV supply chain and government mandates are pressuring manufacturers to produce EVs despite consumer pullbacks. EVs are generally more expensive than their gasoline counterparts, which may explain the slower decline in the luxury category. The average transaction price for an EV in the US was between $53,000 and $60,000 in September 2023, compared to the overall vehicle average of $48,000. The EV buyer profile is also changing, with 40% trading in their existing vehicles, indicating a shift from supplemental to primary vehicles. Early adopters were more affluent, but the market is now catering to a more mainstream buyer, with a focus on charging infrastructure and the potential for buyer remorse due to rapid technological advancements.

10:03

🛑 Regional and Economic Factors Affecting EV Adoption

Despite the perception of waning demand, EVs still make up a significant portion of US vehicle sales, with a record 8% through early September 2023. However, there is a notable degree of regional variation in EV adoption, which correlates closely with economic metrics such as pump prices and home energy rates. For instance, higher gas prices in California are driving more consumers toward EVs compared to Texas, where gasoline is significantly cheaper. Tesla's aggressive pricing strategy has significantly impacted the market, with transaction prices for its models dropping by 13% to 21% year over year. This has created an unlevel playing field for other automakers, who are struggling to compete with Tesla's prices and extensive supercharger network. The industry is also grappling with the issue of EVs on the lots not aligning with consumer preferences, leading to a rise in inventory.

15:07

🔄 Reflections on the Transition from ICE to EV and the Way Forward

The transition from internal combustion engines (ICE) to electric vehicles (EV) has been rapid and presents several challenges. With over a century of experience with ICE, the industry is still in the early stages of understanding and optimizing battery electric technology. Despite the current slowdown and oversupply, there are reasons for optimism. Studies show that consumers are willing to accept longer charging times and slightly less range on EVs compared to ICE vehicles. Although the number of potential EV buyers has decreased from 2021 to 2023, it remains higher than in 2019. The comparison to the shift from flip phones to smartphones illustrates the reluctance to revert to older technologies. The industry may benefit from slowing down the pace of change and focusing more on hybrid vehicles as a bridge to improved battery technology, rather than a full-scale shift to EVs.

Keywords

💡Investment

Investment refers to the commitment of money or capital with the expectation of generating a profit or achieving a financial return. In the context of the video, it highlights the significant financial commitment of $6.5 billion dedicated to the development of electric vehicles (EVs), indicating a strong belief in the future of this technology.

💡Electric Vehicles (EVs)

EVs are vehicles that are powered by electric motors and typically use rechargeable batteries as their primary source of energy. The video discusses the rapid growth and investment in EVs, as well as the challenges they face in terms of consumer adoption and market dynamics.

💡Consumer Spending

Consumer spending refers to the money spent by individuals on goods and services. The script mentions that consumers spent nearly $400 billion on electric cars worldwide in 2022, underscoring the significant economic impact of the shift towards EVs.

💡Automotive Companies

Automotive companies are businesses involved in the design, development, manufacturing, marketing, and selling of motor vehicles. The video highlights the total investments committed by these companies to EVs, which amount to $616 billion, showcasing the industry's dedication to this sector.

💡Sales Slowing

Sales slowing indicates a decrease in the rate at which products are being sold. The script discusses how EV sales are experiencing a slowdown, which is a pivotal point in the narrative as it raises questions about the future of the EV market and consumer preferences.

💡Long Distance Travel

Long distance travel refers to journeys that cover significant geographical distances. The script mentions concerns about the limitations of EVs for long distance travel due to range anxiety and the need for planning, which is a key factor influencing consumer hesitation towards EVs.

💡Hybrid Vehicles

Hybrid vehicles combine a conventional internal combustion engine with an electric propulsion system. The video discusses how companies like Ford are ramping up hybrid production as demand for pure EVs levels off, indicating a potential middle ground in the transition from ICE to fully electric vehicles.

💡Oversupply

Oversupply occurs when the quantity of a product available in the market exceeds the demand for it. The script points out that there is an oversupply of EVs in the industry, which is greater than the demand, leading to longer sales times and inventory buildup.

💡Government Mandates

Government mandates are regulations or orders issued by a governing body that must be followed. The video discusses how government policies and mandates are pushing for electrification, influencing the automotive industry's direction and the development of EVs.

💡Transaction Price

Transaction price refers to the final price paid by a buyer for a product or service. The script notes that the average transaction price for an EV is higher than that for a traditional vehicle, which may affect consumer decisions and the marketability of EVs.

💡Regional Variation

Regional variation refers to differences in patterns, behaviors, or preferences across different geographical areas. The video points out that EV adoption rates vary significantly by region, often correlating with economic factors such as fuel and energy costs.

💡Tesla

Tesla is a leading manufacturer of electric vehicles and clean energy solutions. The script discusses Tesla's impact on the EV market, including its aggressive pricing strategy, which has significantly influenced the EV market dynamics and consumer perceptions.

Highlights

Unprecedented $6.5 billion investment in electric vehicles (EVs) by the auto industry.

Commercial EV spending projected to exceed 1.2 trillion between now and 2030.

Consumer spending on electric cars worldwide reached nearly $400 billion in 2022.

The US is anticipated to add 1 million new EVs to its roads annually from 2023 to 2027.

Automotive companies have pledged $616 billion in total investments towards EVs.

EV sales are experiencing a slowdown, with challenges in long-distance travel and charging infrastructure.

In August 2023, EV sales duration doubled compared to January, while gas vehicles sales remained strong.

Consumer and dealer sentiment towards EVs is mixed, with less than a third of dealers seeing them as the future.

Tesla has significantly reduced prices, impacting the EV market dynamics.

EV startups face disappointing sales, and companies like Ford increase hybrid production due to flat EV demand.

Oversupply of EVs in the industry exceeds current demand.

Average dealership supply of ICE vehicles is 52 days, while EV supply is 90 to 100 days.

Consumer interest in EVs has dropped from 86% in 2021 to 67% in 2023.

Ford's F-150 Lightning saw a surge in reservations but later experienced slowed sales.

Economic challenges such as interest rates, inflation, and supply chain disruptions affect the EV market.

Government mandates and regulatory pressures influence the pace of EV production despite consumer pullbacks.

EVs tend to be more expensive than comparable gasoline vehicles, affecting their market penetration.

EV buyers are changing, with 40% trading in their vehicles for new ones, indicating a shift in the market.

The luxury EV segment has not slowed down as much as the overall EV market.

Tesla's aggressive pricing strategy impacts the EV market, with transaction prices dropping significantly year over year.

Regional variation in EV adoption rates correlates with economic metrics such as pump prices and home energy rates.

Tesla's dominance in the EV market with lower prices and a robust charging network challenges other manufacturers.

The auto industry's rapid shift towards EVs may have been too fast, with a mismatch between supply and consumer demand.

Despite challenges, there is optimism for EVs as consumers are willing to accept trade-offs in charging times and range.

The EV market is still growing, with EVs making up 8% of US vehicle sales through early September 2023.

Consumers are unlikely to revert to combustion engines after experiencing EVs, similar to the shift from flip phones to smartphones.

Transcripts

I've been in the auto industry 40 years, and I've

never seen this kind of investment.

$6.5 billion strictly dedicated to EVs.

Wedbush says spending on commercial EVs should top 1.2

trillion between now and 2030.

We're building the future of the electric vehicle.

In 2022, consumers spent nearly $400 billion on

electric cars worldwide.

The US is expected to add 1 million new EVs to its roads

in 2023, and from 2023 to 2027.

Automotive companies have committed $616 billion in

total investments.

Meanwhile, these efforts have hit an unnerving speed

bump. Ev sales are slowing.

I was a little nervous about going all EV because my

husband has an EV as well, and to have two EVs in the

house, you know, it's challenging.

I think the main issue is the long distance travel.

We've been kind of in that situation.

You do have to plan.

Yes.

In August 2023, it took about twice as long to sell an EV

in the US as it did the previous January.

Gas burning vehicles were still selling briskly.

While slightly more than half of consumers say EVs are the

future and will eventually replace combustion engines,

less than a third of dealers say so.

You have a product that almost every automaker has

hinged their future on.

The government is really saying, look, we got to go

with electrification.

But when the rubber meets the road, when people have to

make that decision and a lot of money is involved, we're

starting to see that that's starting to take a bit of a

hit.

Tesla has slashed prices dramatically.

Sales at some EV startups have disappointed, and

companies like Ford have ramped up hybrid production

as demand for their EVs has leveled off.

So what is really going on and why?

And what does it mean for the future?

For those who are in combustion, would you suggest

taking the step as the bridge, so to speak, to a

p-hev, a plug in hybrid?

Or do you think perhaps going right over that to an

electric vehicle?

There is a oversupply of electric vehicles in the

industry today that is greater than the demand.

This is Jeff Aiosa.

His shop is one of 383 Mercedes-Benz dealerships

around the US.

It pulls in about $40 million a year, employs about

50 people and at any given time keeps about 70 cars on

the lot. About a third are EVs and hybrids.

It's not that the customer is not considering it or

entertaining the purchase.

It's the reticence to that anxiety that exists relative

to the range that the battery can produce.

And coupled with or compounded by the lack of

public charging infrastructure. We're perhaps

moving a little bit too fast.

Cox automotive said in July 2023, on average, there's a

52 day supply of ICE vehicles at dealerships.

If they stopped making cars today, a dealer would have

enough to last 52 days.

Pickup trucks went from 52 days to turn in January 2023

to just 57 by August.

Meanwhile, the EV supply was closer to 90 to 100 days.

No segment has seen a rise as substantial as EVs.

There's definitely a rise in, you know, how long a vehicle

is going to sell a lot.

It's just that the EVs are sitting even longer.

And the fact that we're seeing it reflected in the

used car market as well, that tells us this isn't just

like an isolated incident.

This is something that is very targeted.

Numbers elsewhere suggest enthusiasm for EVs has

dampened from a pandemic era high in 2021.

86% of US buyers were considering an EV.

That number has since fallen to 67% in 2023.

In May 2021, Ford opened reservations for its F-150

lightning, the fully electric version of the most

popular vehicle in America.

It closed them by the end of the year because the company

said it had enough reservations for three years

worth of production.

But by September 2023, Ford said it was ramping up

production of its hybrid F-150 because sales of the

lightning had slowed.

We literally had people who would follow car carriers to

the store, hoping that when it got here that the car on

the carrier that they wanted to buy was available, only to

learn that it was already sold.

People are rushing to the dealership.

They're going bananas, paying over mSRP.

They're bidding. Wars are going on.

People are like, I hope that guy doesn't buy it.

If it falls off the truck, I'll buy it kind of attitude.

I mean, just completely by the wayside.

Now it's just been one year and the market for EVs is

upside down.

The softening of sales isn't just happening for legacy

brands. The buzzed about luxury EV brand lucid has

seen two consecutive quarters of weaker than

expected demand.

Most recently, it delivered 600 fewer of its high

performance, 500 mile range luxury air sedan than Wall

Street had expected in the second quarter of 2023.

There are larger economic challenges, interest rates

are up and so borrowing money is a lot more

expensive. Inflation has reduced purchasing power and

supply chains are disrupted.

The inflexible nature of the EV supply chain is pressuring

OEMs to make EVs despite consumer pullbacks.

Then there are the pressures of meeting government

mandates.

Think of the lens of the manufacturer, where it

typically takes a cycle time of upwards of 7 or 8 years,

from inception to showroom for and wheels rolling.

Right. So that's a big ship to turn.

And then back to the mandates, the regulatory

pressures. When you have to meet those, it's not like you

can just throw a switch and convert from combustion to

electric.

There is a specific pricing challenge with EVs.

They tend to be more expensive than their gasoline

counterparts. That may explain why the luxury

category hasn't slowed down as much as EVs have.

A luxury mid-size electric crossover, say, will often

have a higher transaction price, or even a higher

sticker price than a comparable fuel burning one

in the same class.

The average transaction price for a vehicle in the US

was about $48,000 in September 2023.

The average transaction price for an EV was somewhere

between $53,000 and nearly $60,000, depending on whose

data you use.

Meanwhile, the EV buyer is changing.

Drury says about 40% of EV shoppers are trading in a

vehicle they already own for a new one.

That is about twice what it was a decade ago.

That suggests that a lot of those EVs purchased a decade

ago were supplemental vehicles.

An extra car.

Like if you had a two car garage, you got a third.

And part of that was because those EVs, they qualified for

lots of tax credits.

You got HOV access lane.

I know in Southern California that was such a huge thing

that vehicles with that sticker they would sell at a

premium.

As a Mercedes dealer, Jeff Iosa still interacts with a

lot of well-heeled customers. Even he has seen

evidence of this.

The early adopters were very techie and they were very, I

want to say, more in the space of luxury.

Last year we had 30 something models in the

marketplace to almost 90 plus models today.

A more mainstream buyer.

So these are the chargers for fast charge charging and home

charging.

Aisa sells an EQB, a more mainstream priced EV that

retails somewhere in the high $50,000 range.

It's not cheap, but it's only slightly above the

average vehicle transaction price, and it's a lot less

expensive than the EQE, which can run above $90,000,

and the EQS, which can run up to 140,000.

These vehicles won't be worth nearly as much as, say, an

ICE equivalent, which has more certainty involved.

You know, there's not going to be leaps and bounds of

technology and improvements in ICE vehicles, but we know

there will be with EVs.

Batteries on average, are warranted for ten years to

give at least 80% efficiency.

That's not the case with ICE .

ICE cars, everybody puts out a good car today and they

last well over 20 years.

I think there's an evolving sense of buyer remorse.

You see this in televisions where, you know, every 6 to 9

months, you feel like the same 52 inch TV is cheaper at

Best Buy or pick your location for the same

functionality. And, you know, especially now that

OEMs are lowering prices.

At the end of the second quarter 2023, several

automakers announced that they're moving to the Tesla

charging standard, also known as the North American

Charging Standard, or NACS.

That means there are vehicles stuck on factory

floors with an obsolescent charging outlet.

Charging is a sore spot for all types of buyers, whether

current, past, or prospective.

This EV will allow you to plot a course and determine

and predetermine when you arrive at different charging

stations.

Then there is the government.

There's a fair amount of feedback that we get from

customers that say, you know, we just don't like the

government telling us what we should buy.

By 2032, 67.5% battery electric is aggressive.

I think by 2035, all electric is aspirational.

I don't think that that's going to happen.

EVs sitting on lots does not necessarily equal waning

demand. EVs made up a record 8% of US vehicle sales

through early September 2023.

If we looked at EVs as their own segment, we took

everything and put it together. It'd be the number

six segment in the industry.

So it's not as if nobody wants them.

There's no demand.

However, there is a tremendous degree of regional

variation. While there have always been regional stories

in auto pickup trucks in Texas, luxury cars in the

northeast. EV adoption rates pretty closely track to

economic metrics: pump prices, and home energy

rates.

If gas prices get up to close to $6 like they are in most

parts of California, we're going to see a lot of

consumers there shifting toward toward EVs.

Meanwhile, in Texas, gasoline prices are almost $2

a gallon cheaper in Texas than they are in California.

But there is another reason why inventories have been

building. Tesla, which dominates the EV market, has

been hacking away at its prices.

In August 2023, Cox Automotive data showed the

average price paid for an electric vehicle was $53,376,

down from $53,633 in July 2023, and down from more than

$65,000 a year prior.

Again, that decline is driven almost entirely by

Tesla. In August, model three transaction prices were

down 21% year over year, while model S was down 17%.

Model Y dropped 16% and model X was down 13%.

At the beginning of 2023, the model S was priced at

$104,990, and the model X was priced at $120,990.

By September 15th, the price was $79,990 for the X and

$74,990 for the S.

It's about two thirds of all EVs sold are Tesla's because

their prices are so aggressive. So not only do we

have fewer consumers looking for an EV in Q2, we actually

saw that those that were.

It's very hard to get beyond Tesla with their prices and

certainly with their supercharger charger network

to go buy an alternative.

It's an unlevel playing field when you have a manufacturer

that sells in the space of vertical integration direct

to the consumer and not use the franchise system, it

gives some flexibility to that direct seller to be able

to adjust their pricing.

And in the case of Tesla, conveniently below the

threshold so that you can capture more of the incentive

money from the government.

Meanwhile, automakers are releasing EVs that are often

selling for above $50,000.

Ford hiked the starting price on its F-150 Lightning

in March of 2023 to $60,000, a 50% increase over the

original $40,000 starting price.

Ford has since cut that to $49,000, but again, that is

still $10,000 higher than the automaker had originally

planned.

It's very expensive to bring EVs to market, and a lot of

cases, vehicles that were announced at a certain price

point a couple of years ago.

The automaker has not been able to hold those prices in

this market, and so those earlier announced prices have

have tended to creep higher.

The picture that starts to emerge.

The EVs that are on the lots don't match what consumers

want and what dealers are selling.

Don't get rid of your combustion car.

I would like to see the government reassess their

regulatory pressures and perhaps revisit the

incentives through the IRA.

Inventory is going to rise at the same time that the auto

industry continues to launch more and more EVs at that

$50,000 to $60,000 price point, which is already well

saturated. There is demand for EVs.

It's just that their Teslas and their a lot lower price

than what we see.

If perhaps we could hit the rewind button and do things

differently than we have.

I would like to think that maybe we would have slowed

things down, maybe been more in the space of hybrid as a

bridge to a more perfected battery technology.

We have been in the space of combustion ICE for over a

century, so we have a lot of experience with it.

Battery electric is at ground zero.

We don't know. We don't know, and we're still kind of

cutting our teeth with it.

Clearly, I believe that we've moved a little bit too

much and too fast.

But there are reasons to be optimistic.

The S&P study showed that people were willing to accept

charging times of up to an hour and less range on an EV

than on an ICE vehicle.

That's another shining light for EVs.

Is, again, this understanding that they're

not necessarily going to get what they get with their

typical ICE vehicle, but they are actually willing to

accept something less than what they're getting with

their vehicle.

And while the number of buyers considering an EV did

fall from 2021 to 2023, it is still higher than it was

in 2019.

The analogy that I like to use is we all have

smartphones today, and most of us had flip phones.

And if I said to you, give me your smartphone and I'm

going to give you back a flip phone, it would be like

saying, give me your EV, I'm going to give you back a

combustion. And I would say that 90 plus percent of the

people, including myself, would say, I'm good, I'm

keeping my smartphone, I'm keeping my electric car.

You don't want to go backwards.